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EnCana raises resource estimates, sales forecast
Don Whiteley Petroleum News Contributing Writer
With its money placed squarely on unconventional natural gas and oil sands development, Calgary-based EnCana Corp. announced on June 15 that it had raised significantly both its resource estimates and its 2004 sales forecast. The largest oil and gas producer in Canada, company engineers now believe EnCana’s properties contain an estimated resource of 16 trillion cubic feet, up 70 percent from a year ago. Crude oil resource estimates have been raised by 40 percent to 850 million barrels.
It is important to understand that these are resource estimates, not proven reserves, and are subject to additional work and the vagaries of oil and gas prices. Nevertheless, they indicate the company’s growing asset base through both the drill bit and through acquisitions.
EnCana also raised its 2004 sales forecast to between 725,000 and 765,000 barrels per day of oil and gas equivalent, up from 650,200 boe per day in 2003. In 2005 the company expects to produce between 810,000 and 860,000 boe per day.
The company had originally forecast organic sales growth of 10 percent in 2004. But after a deeper look, EnCana hiked the organic growth rate to 12 percent in 2004, before the inclusion of the recent acquisition of Tom Brown Inc. and additional planned asset sales. North America gas spotlight While EnCana is active in both the North Sea and Ecuador, North America is currently in the company spotlight for both unconventional oil and natural gas development. However, EnCana continues to peddle conventional Canadian properties that produce about 35,000 barrels of oil equivalent per day.
“Our resource play strategy is delivering strong sustainable production growth,” said EnCana Chief Operating Officer Randy Eresman. “Natural gas production in the U.S. Rockies is up more than 25 percent in the past year, before the inclusion of Tom Brown production. In Western Canada, gas production is gaining momentum, up about 14 percent in the past year. In-situ oil sands production continues to grow, up about 35 percent in the past year.”
Eresman went on to say that the increase in the company’s sales forecast can be tied directly to “strong performance from our resource plays.” Already in 2004 EnCana has drilled more than 2,200 net wells on its North American properties. Planned capital expenditures also up And in that vein, the company has boosted its planned capital expenditures for 2004 by US$850 million, with nearly one-third of that to be spent on the newly acquired Tom Brown lands. The rest will be split among Canadian Plains, Canadian Foothills and Frontier, and other U.S. properties. The program is expected to result in about 5,000 net wells drilled.
Growing in importance in its unconventional gas mix are two British Columbia Properties — Greater Sierra and Cutbank Ridge. Resource plays, both are “tight gas” formations with low permeability and porosity, and require costly production techniques to get the gas to flow. EnCana is counting on North America’s tight supply/demand scenario to keep prices high enough to maintain economic feasibility for these plays.
Just how big it might be depends on whether you talk to the British Columbia Energy Ministry, The Canadian Gas Potential Committee, or EnCana Energy, the lead player among several companies now tapping into the play. While they may differ on the top end, all agree that it is bigger than anyone thought possible even as recently as two years ago.
“It’s a huge play and it goes for hundreds of miles literally,” says Mike Graham, EnCana’s president Foothills region, of the greater Sierra play. “You just step out and it keeps growing. It looks like its gas charged right from the NWT right into the Rocky Mountains. It keeps growing.” EnCana bumped up resource estimates EnCana some months ago bumped up its resource estimates on its own Greater Sierra lands, from an original 5 trillion cubic feet of gas in place and 2.5 tcf recoverable to 6.5 tcf in place and 4 tcf recoverable. Graham estimates that the entire formation could have more than 10 tcf.
Cutbank Ridge, a tight gas play near Dawson Creek, British Columbia, raised eyebrows internationally less than a year ago when EnCana laid out C$369 million for leases in the area. It contributed to a one-day British Columbia land sale that all by itself eclipsed the previous record for a full year.
In order to speed up the development of these plays, EnCana pioneered the use of wooden drilling mats that allow summer drilling on otherwise swampy terrain. In practical terms, that virtually doubled the drilling season on British Columbia plays, which had been previously limited to winter freeze-up.
“Last year, we drilled 270 net wells in B.C., or about 25 percent of the provincial total,” Morgan said in a speech to the British Columbia Board of Trade. “This year, we’ll do about the same.”
Within five years, EnCana expects longer-life, lower-risk projects like the two British Columbia properties will account for 80 percent to 90 percent of the company’s North American gas production, compared with less than 60 percent last year.
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